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impact assessment; a “take-or-pay” provision required MSEB to
pay a fixed annual rate in U.S. dollars for 20 years—irrespective of
electricity consumed, fuel prices or exchange rates—with no corresponding
audit or minimum supply requirements for Dabhol Power;
and MSEB would have to charge customers rates much higher
than elsewhere in India—which could have the effect of driving up
electricity prices nationwide.
The World Bank turned down financing for the Dabhol project in
April 1993, claiming that it was “not economically viable.” In
December 1993, however, CEA gave its provisional approval and
MSEB signed a power purchase agreement (PPA). Dabhol Power,
in turn, used the PPA to raise $1.9 billion from Indian public sector
banks; Japanese and Belgian export credit agencies; a syndicate
of foreign banks; and the Overseas Private Investment Corp.
(OPIC), which lent $160 million directly and provided an additional
$232 in political risk insurance for Enron, Bechtel, GE, and one of
the commercial banks involved. Both the Government of
Maharashtra and the Government of India provided guarantees.
Protests by local governments, environmental activists, and opposition
political parties built steadily as the project broke ground in
1995. The Congress party was ousted in Maharashtra state elections,
in favor of the Bharatiya Janata Party (BJP), which had campaigned
against Dabhol. MSEB sent Dabhol Power a letter calling
for a halt to construction.
Dabhol Power renegotiated the original PPA, adding a second
phase that would expand the plant over time to generate 2,184
megawatts and would include a liquefied natural gas (LNG) tanker
terminal and an inland pipeline for LNG that Enron would import
from Qatar, under reduced tariffs approved by the Indian government.
In return, electricity rates were lowered and MSEB was given
a 15% stake in the project. Phase I was completed and began
operating in 1999. But by 2000, electricity demand was still far below
initial projections due to the 1997 Asian economic crisis, and MSEB
was behind in its payments. Under the PPA’s take-or-pay provisions,
once Phase II came online in 2001, MSEB’s payments would triple,
and passing that cost on would mean a 50% hike in utility rates.
The state government decided to cut its losses: the Maharashtra
Energy Regulatory Commission asserted jurisdiction over the project
and, through a technicality, refused to permit testing of Phase II
turbines, voided the existing Phase I and II payment terms, and
blocked both arbitration and further MSEB investment in Dabhol be-
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